Archive for October, 2013

Bill Gates had once famously remarked, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten”.

Having witnessed the first part of this statement coming true with so many technologies – biometrics, e-grocery and mobile payments to name a few – I’ve always wondered why this was the case. According to a recent experience, the answer seems to lie in the mesmerizing power of new technology to blind a lot of people to the straitjacketing role played by well-entrenched business models.

A few days ago, someone tweeted that the JustBooksCLC store in their neighborhood had shut down. (JustBooksCLC is a book lending library chain that makes innovative use of technology). I tweeted back saying, “Much as I liked JustBooksCLC, I canceled my membership when I got an eBook”. In my reply, I’d also inquired if others would follow suit. I got an unequivocal “yes” in response, followed by the dire prediction that ebooks would kill libraries in the near future.

I don’t think this is going to happen in two years.

It might not even happen in the medium term when we realize that we’re talking about ebooks versus libraries, not ebooks versus printed books.

ebooks cost almost the same as printed books. On the other hand, members can borrow a book from lending libraries for barely 10-15% of the cost of the book. By delivering such a huge cost advantage, libraries deliver a compelling value proposition for people who wish to read books without necessarily owning them.

As a result, libraries are bound to be around for the forseeable future. (As an aside, publishers save on paper, printing and transportation costs in the case of ebooks but they’re somehow able to get away by barely marking their prices down by 15-20% compared to printed books.)

Of course, libraries would face a serious existential threat if ebook lending became commonplace.

However, that’s not likely to happen anytime soon. As of now, there are no ebook lending libraries. This is despite the fact that ebooks are digital and intrinsically more shareable. Wonder why?

Can you say business model?

In the absence of a pure-play service, let me take Lendle, the nearest equivalent to a lending library for ebooks. Although it claims itself to be the “easiest, fastest, fairest, and best way to lend and borrow Kindle™ books”, Lendle is a far cry from a traditional library. For one, you just can’t pay a fixed fee and borrow a predefined number of Kindles a month. The only way to borrow Kindles is to buy some Kindles first and agree to lend them to others on Lendle. You have to buy if you want to borrow – how counterintuitive is that? Secondly, each Kindle can be lent only once. Yes, that’s right, only once in its lifetime. The list of restrictions doesn’t stop there: Its website regrets that “Lendle is currently only available in the United States”.

You can blame business model again.

At this point, seamless ebook lending is virtually non-existent. Therefore, traditional libraries still have a lot of juice left in them. Even if ebooks render printed books obsolete, they won’t kill libraries.

This has nothing to do with technology. This is the result of the way the publishing industry functions. While the prevailing business model could get upended in due course, I doubt if much would change in the next two years.

Drunk on the Kool-Aid of technology, many people seem to forget this. And Bill Gates keeps getting vindicated day after day.

Coincidentally, this ‘kiss-of-death’ appeared on the very next occasion my broadband bill was due subsequent to the launch of the new security measure.

This screen gave many likely reasons to explain why my payment failed. Let me comment on each one of them via this open letter addressed to the ePayment Gateway company that displayed this screen:

Dear ePG Company:

You: You have used the Back / Forward / Refresh button on your Browser.

Me: In general, whenever I sit in front of my computer, I get into a mad frenzy and keep clicking all buttons that I see on the screen. But, I didn’t do that on this occasion. I promise. Check your website clickstream data and you’ll realize that I’m not lying.

You: Your cookies may be disabled.

Me: I don’t recall you asking for my permission to place cookies on my PC in the first place. In any case, I just finished making another payment from the same laptop, so this can’t have anything to do with cookies.

You: Your session has been (sic) expired.

Me: Not by me, for sure.

You: You may be using same browser for different transactions.

Me: Duh! I don’t even know how to do that.

You: Your transaction has been timed out due to inactive (sic).

Me: Given my oft-expressed anxiety about failed payments, I’m never more alert than when I attempt online payments. So, if anyone was goofing off at their post, it wasn’t me.

Wish I could give you more details but I need to go to the TELCO’s office, stand in a long queue and pay the bill before my broadband connection gets disconnected, so you’ll have to excuse my brevity. In return, I’ll forget that you still owe me an explanation for failing to process my payment.

Sincerely yours,

Back-to-Cash Customer

PS: I notice that every one of your reasons begins with “you” or “your”. So much for your faith in your customers. I’ve known some narcissistic banks in my day (sorry ICICI, that old joke had to come out some day) but you’re easily the most cocksure FI I’ve come across. Hope some of that chutzpah rubs off on your website and keeps it up and running, at least when I visit it next.

PPS: If you can’t increase your website’s uptime, can you at least clean up the language on it? I hope you’re not going to tell me that the shoddy grammar is “as per RBI guidelines”?

Comparing McDonald’s with Subway, the recent BusinessWeek article titled Why the McWrap Is So Important to McDonald’s explains how manufacturing style could influence consumer perception of quality. This article got me thinking about the related configure-price-quote process and its repercussions on a company’s margins and reputation as a fair player. For the uninitiated, CPQ is the process by which a company’s salespersons assemble the appropriate product variations and combinations, work out the price for the bundle and communicate it to prospects and customers (Source: Adapted from Gartner CPQ MarketScope for 2013).

Let me begin with the manufacturing style of McDonald’s.

Each McDonald’s burger has a patty, cheese, a mix of vegetables and one or more types of seasoning. Let’s take McDouble as an example. It comprises of pre-defined quantities of beef patty, bun, cheese, pickles, onion, mustard and ketchup.

Frymaster Holding Bin

Salespersons take orders for burgers – and, of course, fries to go with that – behind the counter of a McDonald’s restaurant. Largely uninfluenced by the order, the kitchen staff prepares different types of burgers by putting together their respective ingredients, places ready-to-serve burgers in a wrapper and drops them into a holding bin. When a customer places an order for a certain burger, the salesperson picks up the respective burger from the bin, places it – along with any other ordered items such as fries – on a serving tray and hands over the tray to the customer after receiving payment.

In short, the burger served to a customer is prepared before their order. This makes McDonald’s an example of Made to Stock style of manufacturing. There are a few exceptions to this general procedure but more on that later.

Apart from McDouble, a typical McDonald’s restaurant sells many other types of burgers like Hamburger, Cheeseburger, Deluxe Quarter Pounder, Big Mac, Daily Double, and more. This list extends to include a few local variants such as Veggie Mac all over India and Europe and McSpicy Paneer, which I’ve seen all over India and in a few outlets of McDonald’s in London and Manchester in the United Kingdom. Displayed on its menu, these are the items making up the restaurant’s inventory of saleable items. While it’s technically possible for the attendant to pick up a beef patty from storage and sell it in isolation, such transactions don’t happen at any McDonald’s – at least none that I know of. In other words, beef patty – and other ingredients forming a part of a burger – are not by themselves saleable items for McDonald’s.

In McDonald’s, two customers ordering for a McDouble will get the same ingredients in more or less the same quantity for the same price. Likewise for all other burgers on its menu.

Now, moving to Subway, the sandwich store offers more choice to customers. Order placement involves customers picking and choosing the ingredients they want. Salespersons standing behind the counter – and not kitchen staff behind the scenes – themselves assemble the sandwich in front of customers. For example, a customer Tom who orders a Veggie Delite Sub can ask for double portions of all ingredients such as tomato, cucumber, onion, green peppers, olive, pickle and jalapenos. Whereas another customer Jane could order the same Veggie Delite Sub but opt for single portions of tomato, cucumber and green peppers and skip all other items.

Subway Vegetable Storage Containers

This makes Subway a good example of Assemble to Order style of manufacturing.

Like at McDonald’s, it’s technically possible to just sell tomato slices in a Subway but it doesn’t happen like that in reality. Only fully assembled sandwiches – Black Forest Ham, B.L.T, Buffalo Chicken, to name a few more apart from Veggie Delite – form the list of Subway’s saleable items. In fact, on one occasion, when I wanted a bag of chips with my sub, the salesperson politely declined my request saying that chips were only sold as a part of a certain meal menu that I wasn’t ordering. The exclusion of chips from the list of saleable items is especially noteworthy since it’s a bought out item, with its price clearly displayed on the bag.

Because of its style of manufacturing, Subway manages to convey the impression “whether it’s healthy or not, it’s fresh ingredients freshly prepared”, according to Bonnie Riggs, a restaurant analyst at research group NPD quoted in the above mentioned BusinessWeek article. This impression is largely valid since ingredients are kept in containers right in front of customers who can easily make out whether they’re fresh or not. That’s how Subway carries off its tagline “Eat Fresh”.

To be fair to McDonald’s, preparation of certain rarely ordered burgers – Gemüse Mac or McVeggie in Germany, for example – commences only after the order, but the process takes place behind the scenes in the kitchen. To improve its freshness perception, McDonald’s is lately adopting a hybrid of made to stock and made to order processes, as explained in this article but that’s still not de rigueure in any of the scores of McDonald’s restaurants that I’ve visited in half a dozen countries.

When it comes to pricing, things get a bit interesting at Subway. Intuitively, you’d think that double-portion consuming Tom should pay more for his Veggie Delite Sub compared to Jane who has skipped many ingredients. However, that’s not the case. Subway has a fixed price for each type of sandwich, so Tom and Jane consume different quantities but pay the same price – INR 100 for a 6″ Veggie Delite Sub as on date, if you wish to know.

While customers can “configure” what they buy in a Subway, the prices don’t change depending upon their choice of ingredients. As a result, its pricing policy could be seen as a bit unfair. In the above example, I won’t blame Jane if she feels overcharged by Subway.

All three steps in the Configure-Price-Quote process are pre-decided at McDonald’s. Whereas, in a Subway, the first step is driven by the customer’s order and the latter two steps are pre-decided.

This leads to the question about how Subway manages to preserve its margins when it supplies varying quantities, thereby incurring different material costs, yet charges the same price. That’s a topic for another blog post. Watch this space.

In Use ASPOs To Improve Cold Call Response Rates, I’d introduced Account Specific Point Offerings and touched upon how salespersons can use them to begin the conversation with potential buyers at the top of the sales funnel.

In this post, I’ll describe ASPOs in greater detail and outline a methodology for developing them.

ASPO DEFINED

ASPO is a link between your product or service and your prospect’s strategic initiative.

Strategic initiatives are responses to internal or external events affecting the business. Examples of such events – “trigger events” – are sharp increase in pilferage, expansion into a new geography, acquisition of a new company, and so on. Corresponding strategic initiatives would be contain pilferage, develop localizations, and integrate the IT infrastructure of the acquired company.

As the name suggests, an ASPO is one out of several products / services in the vendor’s portfolio that is relevant to the specific prospect at whom it is pitched. Note that two prospects might respond to the same trigger event in two different ways, so the same ASPO won’t work for both of them.

EXAMPLES OF ASPO

Let me give a few examples of ASPOs created using the aforesaid methodology.

Pitch: “I understand that you’re facing heavy pilferage related losses. I’m calling since I thought you may be looking for a way to restrict access to your warehouses so that you can reduce these losses.”

EXAMPLE-2: IT Localization Solution Targeted At A Prospect That Is Expanding Into New Geographies
“I recently read about your plans to expand into new geographies. From our experience with other customers, the required country-specific localizations may delay your launch dates. I’m calling since I thought you may be looking for a way to curtail those delays and safeguard your launch dates.”

EXAMPLE-3: IT Integration Service Targeted At A Prospect That Acquired A New Company
“I heard about your new company acquisition. This might cause incompatibilities in your IT landscape. I’m calling since I thought you may be looking for a way to integrate the IT systems of the two companies such that the incompatibilities are eliminated.”

CREATING ASPOs

The process of creating an ASPO is illustrated in the following diagram:

CLICK TO EXPAND

It comprises of the following steps:

CLICK TO EXPAND

Tracking trigger events and strategic initiatives for each company on your Target Lead List. If you’re unable to find enough information to do this from the company’s website, you might need to subscribe to premium services like EDGAR Online, InsideView or our HEATMAP360 that provide news, stories and sentiment about current and potential customers.

Creating a strong link between strategic initiatives and your products / services. This link must be clear enough for the prospect to ‘get it’ in the first few seconds of the cold call. It should also be credible enough for him or her to continue the conversation instead of getting put off by tall claims and bang the phone down.

Creating ASPOs requires a 360 degree knowledge of your offerings, a clear grasp of your company’s case studies, the ability to “connect the dots” and, above all, the flair to “think on your feet”. You also need oversight to ensure that your BD executives don’t spend too much time on research and too little on calling.

Companies facing a shortfall of skills or lack of management bandwidth to pull off the development of ASPOs inhouse could always outsource this activity.